the classical

Michael Hudson has a very nice piece from a classical economics perspective on the problems to the economy caused by an out of control financial sector. The nut:

Today’s budget deficits thus have gone hand in hand with over-indebted economies, and with a regressive tax shift that burdens productive labor and industry. The tax systems of nearly all countries today favor debt financing – and hence, asset-price inflation – by permitting interest and financial fees to be tax-deductible, while dividends and earnings must be paid after taxes. This un-taxing of land and rent-extracting monopolies goes against the logic of Saint-Simon and other 19th-century reformers who sought to free markets from debt overhead, not to free bankers and financiers from regulation and taxation.

Today’s financialized world is paying a steep price for its rentier-sponsored reaction against classical economics. This reaction distracted attention from the fact that economies suffer a rising “free lunch” of what J. S. Mill called unearned income and unearned increments in the form of higher land rent and land prices. Rent extraction is the business plan of privatizers of public infrastructure and natural monopolies – and of their financial backers seeking to provide buyout loans. The tragedy of our epoch is that most credit is extended to buy rent-extracting opportunities, not for productive capital formation. Banks prefer to lend against property already in place – real estate or companies – than to finance tangible new capital formation. This poses the threat of globalization taking a corrosive form, ending in debt deflation, privatization and a rentier tollbooth economy rather than becoming a system of mutual gain.

Understand every dollar, Shift-4-Enter or whatever the command he has on his key-board to create dollars, Mr. Bernanke pumps, without first radically reforming our financial system, is simply feeding the beast -- stealing from you and me.

Meanwhile, having been out of power for a couple of years the Reps show they certainly remain the party from funny. I guess just pure criminality is funnier than bumbling incompetent corruption? The Reps put out a call today urging "President Barack Obama to pick a more business-friendly successor to economic adviser Larry Summers." Now, that's funny. Not so funny is Mr. Summers, the personification of our inability to hold power accountable, shuffles off to his cushy tenure at Harvard, having spent over two decades wreaking havoc and despair across the planet. To use one of the Reps best ever punchlines, "Mission Accomplished Larry". Speaking of which, the Reps premier stand-up act, Mr. Rumsfeld, having seemingly had the good taste to disappear after being run out of office, was only writing a book. No doubt the book and tour will be laugh out loud.